College Prep Guide: 15 Ways To Plan Financially for Your Child’s College Education

Paying for college shouldn’t mean that parents dip into their retirement funds—or that students graduate deeply in debt.

by Patti Ghezzi

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It’s exciting to dream with your child about which college she’ll attend. But figuring out how to pay for that college education can take the excitement out of the process.

So how much does a college education cost today? On average, in 2010 a four-year public college cost $15,014 for tuition and fees for in-state students, including room and board. A private college, on the other hand, had an average sticker price of $32,790 per year for students who lived on campus, according to the National Center for Education Statistics.

Textbooks, supplies, transportation, and personal items will add another $4,000 a year on average to a public or private college education, according to the College Board.

Loans are an option for many parents and students, but are students themselves getting saddled with too much debt when they graduate? The average 2010 college graduate owed $25,250, according to the Project on Student Debt.

To pay for your child’s college education, you’ll most likely need to draw from a combination of sources to cover the costs, like many parents will. In addition to contributions that you and your child will make, sources include student and parent loans, scholarships, and need-based aid.

Here are 15 tips on paying for college:

1. Know what to expect in aid. The most important thing parents should do is figure out sooner rather than later what kind of financial aid to expect, says Tim Higgins, a Massachusetts-based certified financial planner and certified college planning specialist. Higgins, who offers guidance for parents in his book Pay for College Without Sacrificing Your Retirement, says, “People go to the mailbox not knowing what the aid letter will say. But you can do the exercise now and estimate what that financial award letter will look like.”

2. Start early. The more time you have on your side, the more you can save toward college expenses. If your child is still several years away from college, you have more time to familiarize yourself with the FAFSA form (Free Application for Federal Student Aid) and to work with calculators to predict your EFC (expected family contribution). “Plan and organize for where you are right now,” Higgins says. The biggest benefit of starting early: “You can set proper expectations.”

3. Consider the College Board financial aid scholarship service. Parents can use the College Board’s Financial Aid Profile service to help with financial aid applications to colleges, but be aware that there is an application fee—per college—to do so.

4. Consider meeting with a financial planner or tax professional. A professional can help you determine what you can afford to spend on your child’s college education without sacrificing your future.

5. Make sure there are affordable schools on your child’s list. As your child creates her list of schools, make sure she includes affordable options. While many online sites offer scores of scholarship leads, there are hundreds of applicants for each one listed. Applying for them might not be the best use of your child’s time, Higgins says. Depending on your circumstances, an affordable option might be an in-state public college, a local college, or a community college. Remind your child that she can transfer to a four-year college later, saving thousands of dollars.

6. Help your child expand his school search beyond brand names. Many children and parents only know popular schools like Duke, UCLA, or the University of Notre Dame. These schools are inundated with applications, however, and most applicants will have little leverage when it comes to getting merit aid. Look for schools with similar programs but less name recognition, Higgins says.

7. Encourage your child to apply to schools she’s overqualified for. The best way to get leverage in merit aid is for your child to apply to a school that will be thrilled to have her. In other words, if your child’s test scores and grades are at the top of a particular school’s range, she’ll have a good shot at being offered an attractive financial aid package. And some private colleges with high sticker prices have more lucrative aid packages.

8. Investigate special programs in your state. Some states have generous incentive programs for qualified applicants. In Massachusetts, for example, tuition at state colleges is waived for students with high scores on the state standardized test. But beware of catches, Higgins says. The Massachusetts program, for example, doesn’t cover fees, which can be high. Similarly, in Georgia, the HOPE scholarship covers tuition at state schools for students who meet the criteria. Yet students may lose the scholarship if they don’t keep up their grades.

9. Use an online calculator to estimate financial aid. This should be done for each school your child is considering. Until you know what your financial aid offer will look like, it’s impossible to know whether you can afford a specific school.

10. Visit free information sites. Websites like CollegeScholarships.com, Sallie Mae, and FinAid offer information for free. FinAid was created as a public service by Mark Kantrowitz, author of Secrets to Winning a Scholarship and publisher of Fastweb, a scholarship matching website. Fastweb also offers calculators, financial aid applications, and information about loans and different types of scholarships, such as those awarded based on fields of study, athletics, study abroad, contests, and grants.

11. Look to community resources for scholarships. Higgins recommends looking locally for scholarships. Does your company offer scholarships? How about the local Lion’s Club or Kiwanis Club? Higgins says you won’t find these scholarships on the Internet. “They’re available inside your [child’s guidance] counselor’s office,” he says. Your child’s chance of getting one of these local scholarships is excellent because most students never bother to ask about them.

12. Work down the pecking order of loans, if you have to borrow. The best loans—and the first to try for—are subsidized, and the FAFSA will help you determine eligibility. But there are also unsubsidized loans that any student can qualify for. Another option is to borrow against your home through a home equity line of credit. Next on the list to consider is a Direct PLUS loan, which is a federal loan program for parents of undergraduates.

13. Borrow in your child’s name. Borrow as much as possible in your child’s name, Higgins says. You can still help your child repay the loans upon graduation.

14. Avoid private loans. Consider a high-interest private loan only as a last resort. A private loan might be in the student’s name, but if the parent has to cosign, it’s really the parent taking out the loan—and thus guaranteeing its repayment. If your child insists on taking out high-interest loans to fund her education, educate her about starting job salaries versus monthly loan payments. And note that student loans are not dischargeable in bankruptcy.

15. Understand everything that is signed. You may feel desperate to make your child’s college dream come true, but you should understand everything that you and your child sign. Don’t let desperation and enthusiasm cloud your judgment, Higgins cautions.

Figuring out how to pay for college shouldn’t come after your child has made his final decision; instead, it should be a part of the college selection process. By arming yourself with information, you can work with your child to find the college that will help him realize his potential. And, yes, you can still retire—someday.